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WisdomTree (WETF) Inks Stock-Cash Deal With ETF Securities


Amid cyclical movements in the asset management industry, asset managers are striving for growth through different avenues. Recently, New York-based WisdomTree Investments, Inc. WETF, an exchange-traded fund (ETF) and exchange-traded product (ETP) sponsor and asset manager, entered into a stock-cash acquisition deal with ETF Securities. Under this deal, WisdomTree will acquire $17.6 billion worth European exchange-traded commodity, currency and short-and-leveraged business (the "Acquired Business") for about $611 million.

The combined entity will form the ninth largest ETF provider in the world with significant presence in the two largest markets — Europe and the United States. The deal is likely to close by first-quarter 2018, subject to certain regulatory approvals and customary closing conditions.

ETFs are one of the fastest-growing products in the asset management industry. These allow investors the ease of trading the entire portfolio of stocks against trading only one stock. ETFs are often constructed to track a broad market index, which can be done at quite a low cost.

Terms & Benefits of the Deal

On entering into the agreement, WisdomTree has expanded its foothold in Europe, acquiring the leading position in the European-listed gold and commodity products industry. Further, diversified AUM internationally and increased profitability at WisdomTree Europe and its International Operating segment will serve as tailwinds.

Further, on completion of the Acquired Business’ acquisition, as of Nov 9, 2017, WisdomTree’s assets under management would total nearly $66 billion internationally, on a pro-forma basis.

Per the deal, WisdomTree will pay $253 million in cash and 30 million shares for the Acquired Business. Cash portion includes $200 million of newly issued debt and $53 million of cash in hand.

Moreover, the dividend will be reduced to 3 cents per quarter from 8 cents, following the transaction. Though the acquisition is likely to be accretive to earnings per share immediately on completion, excluding one-time transaction and integration costs, the above-mentioned deal might face near-term headwinds on dividend reduction and increasing debt burden.

"We are very excited to meaningfully expand and enhance our presence and capabilities in the European market by adding ETF Securities` market-leading commodity platform to WisdomTree`s differentiated European product offering," said Jonathan Steinberg — WisdomTree CEO and president. "The acquisition will immediately add scale, diversification and profitability to our business in Europe, the second largest ETF market in the world and a growing and strategically important region for us and the entire industry. The addition of this complementary and competitively positioned commodity business is an important development in WisdomTree`s strategy to establish itself as a differentiated and diversified ETP provider that can thrive globally and generate long-term shareholder value," Steinberg further noted.

Similar Moves by Other Asset Managers

Invesco Ltd. IVZ acquired the ETF business of Guggenheim Partners LLC and London-based ETF provider — Source — in 2017. Further, Franklin Resources Inc.’s BEN Franklin Templeton is on the verge of developing a new ETF strategy for which operations have been rolled out in Canada and Europe.

Bottom Line

We believe the latest acquisition is a befitting one that will likely support the future prospects of WisdomTree, which remains focused on executing strategic growth initiatives, including expansion of distribution capabilities, investment in technology, launch of innovative products, as well as addition of personnel. However, the asset manager has significant exposure to internationally-hedged products, particularly major currency-hedged funds — HEDJ and DXJ — which are highly unstable and might act as headwinds.

Notably, the company's share price rose nearly 18.7% over the last six months as compared with 11.2% growth recorded by the industry.

Currently, WisdomTree carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked company is TD Ameritrade Holding Corporation AMTD, which has been witnessing upward estimate revisions for the past month. Also, the company’s shares have moved up nearly 29.9% over the past six months. It sports a Zacks Rank of 1, at present.

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